China Plans to Set Up Coal Production Reserve Despite Pledging to Phase Out Dirty Fuels

A Chinese state planner says the country will set up a backup production system for coal production to secure China’s coal supply and stabilize prices despite national plans to begin phasing out coal use in the latter half of the decade. China is one of dozens of countries that pledged to phase out coal use as part of global efforts to combat climate change. However, the world’s largest polluter seems to have gone all-in on coal in recent years.

The Asian nation’s reinvestment in the dirty fuel was triggered by a global energy crisis that was significantly exacerbated by the Russia-Ukraine war, which led to major energy shortages that caused energy prices to skyrocket. In addition, starting mid-2022, unexpected heat waves and droughts impacted electricity production from hydrothermal power plants and contributed to the country’s mounting power shortages.

China began approving new coal-power plants in record numbers later in the year as it scrambled to shore up energy supplies amid dwindling hydrothermal production and regional power crunches. The Chinese government approved a record 106 gigawatts (GW) of new coal-generated power capacity in 2022 alone and continued its run of coal-power plant approvals well into 2023.

Officials are now set to establish a backup production system in only three years as it seeks to secure the local supply of coal and stabilize prices. Draft rules for the production capacity reserve will remain open to public comment until Jan. 6, 2024. Although the state planner said the country is looking to build up at least 300 million metric tons of “dispatchable” yearly coal production by the end of the decade, no details on how the reserve would function were provided. Even so, the  reserve would build on a 2021 goal of stocking at least 15% of the nation’s annual coal consumption at designated storage areas, power plants, ports and mines by making sure that a certain amount of production capacity is ready for mining as needed.

The National Development and Reform Commission (NDRC) said that coal mines with at least three million tons of annual production capacity and the ability to dispatch coal output when supply is tight or the government considers coal-spot prices to be over a reasonable range can be included in the new back-up production system.

According to David Fishman from energy consultancy Lantau Group in Shanghai, the coal-production reserve is meant to “reduce volatility in short-term markets” and provide a lever for punishing price manipulators and speculators.

This new development in China goes to show that implementing global plans to phase out coal will not be a walk in the park, given the way nations have come to depend on coal extracted by companies such as Arch Resources Inc. (NYSE: ARCH) for their energy needs.

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